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United States v. Drago

United States District Court, E.D. New York

September 10, 2019

UNITED STATES OF AMERICA,
v.
JOHN DRAGO, Defendant.

          REPORT AND RECOMMENDATION

          ANNE Y. SHIELDS, UNITED STATES MAGISTRATE JUDGE

         Defendant John Drago (“Drago” or “Defendant”) is charged in an indictment (the “Indictment”) with banking and tax crimes arising out of his operation of check cashing businesses known as the “Kayla Companies” (“Kayla”). (See generally Docket Entry (“DE”) [1].) According to the Indictment, Drago violated Internal Revenue laws and regulations by failing to truthfully account for and pay Federal Insurance Contributions Act (“FICA”) taxes, failing to file required quarterly Federal tax returns, and by failing to inform the Internal Revenue Service of payment of cash wages. Drago is also charged with violating the Bank Secrecy Act (the “BSA”) by failing to properly file Currency Transaction Reports (“CTR's”) with the Financial Crimes Enforcement Network (“FinCEN”). CTR's are required to be filed for each transaction in currency, such as a deposit, withdrawal or exchange of payment, in excess of $10, 000. Drago is also charged with violating the BSA by failing to develop and properly implement an effective money-laundering program “reasonably designed to prevent” a check casher from being used to facilitate money laundering.

         Drago moved to dismiss the Indictment and to suppress evidence seized in connection with a search conducted at Kayla's business premises. (DE [24].) The District Court referred Drago's motions to this Court for Report and Recommendation. (See Order of Feuerstein, J., dated May 28, 2019.) In a Report and Recommendation dated June 25, 2019, (the “June 25 R&R”), (DE [57]), this Court held, inter alia, that the warrant executed in connection with the search of Kayla (the “Kayla Search”) violated the particularity clause of the Fourth Amendment. It was also held that a hearing was necessary to determine whether the asserted good faith of the Government should avoid suppression of the fruits of the search conducted pursuant to the defective warrant. (DE [57] at 14.)

         On July 15, 2019, the District Court adopted the June 25 R&R. (DE [60].) Thus, in addition to adopting the other matters referred to therein, the District Court adopted this Court's recommendation that a hearing was necessary to determine the issue of good faith. That hearing was held before this Court on July 23 and July 24, 2019. (DE [68]-[69].) On August 23, 2019, the parties submitted memoranda of law supporting their respective positions as to the requested remedy of suppression. (DE [70], [71].) For the reasons set forth below, and upon review of the testimony of witnesses, as well as the submissions of counsel, this Court respectfully recommends that the motion to suppress the evidence obtained via execution of the defective warrant be granted, and that the fruits of the Kayla Search be suppressed.

         BACKGROUND

         I. The Warrant

         The warrant authorizing the Kayla Search (the “Warrant”) was issued in 2013 by then Magistrate Judge Wall. (See Government Exhibits (“GX”) 27 (affidavit submitted in support of request for issuance of the Warrant) and 28 (Warrant).) In support of its request for a search warrant, the Government relied upon the affidavit of Special Agent Michael Snedeker (the “Affidavit”). (GX 27.) As set forth in the June 25 R&R, the statements set forth in the Affidavit were more than sufficient to establish probable cause to search Kayla. (June 25 R&R, DE [57], at 12-14.)

         The Constitutional infirmity with respect to the Warrant was not in the statements made in the Affidavit, nor in the Magistrate Judge's finding of probable cause, but instead, in the language of the Warrant itself. In particular, the Fourth Amendment was violated by the Warrant's failure to connect the broad list of the items to be seized with any crime at all. It is worth detailing here the problematic language of the Warrant and, in particular, the attachment thereto that was meant to describe the documents to be seized.

         The Warrant itself is a form document entitled “Search and Seizure Warrant.” (GX 28.) The property identified to be searched is the premises of Kayla. (Id.) Because of space limitations in warrant forms, the things to be seized from Kayla were - in accord with typical practice - described in a separate attachment. That document, “Attachment A” to the Warrant, is entitled “Items to Be Seized.” (GX 28.) It is the language of that attachment that falls short of the Fourth Amendment's particularity requirement. To demonstrate, the list of documents in Attachment A contains ten separate categories of documents. The first nine categories make no reference whatsoever to their relation to any crimes. Instead, they are broadly stated categories of items including, for example:

Records, documents and materials that memorialize or reflect financial transactions between Kayla and its source(s) of cash, including, but not limited to contracts, receipts, invoices, letter, bank statements, notes, ledgers, cash receipt journals or records cash shipment records, and/or cash delivery records;
Records, documents and materials that memorialize financial transactions between Kayla and the bank or banks at which Kayla holds accounts, including, but not limited to, bank statements, account summaries, deposit slips, deposit items, and/or cancelled checks;

(Attachment A to Warrant, GX 28, at ¶¶ 3-4.) Like paragraphs 1-9 of Attachment A to the Warrant, the afore-quoted paragraphs describe broad categories of items to be seized, but make no connection whatsoever between those categories and any crime or criminal activity. Indeed, the only paragraph of Attachment A that makes any reference to criminal activity is its final category of items, those referred to in paragraph 10 of Attachment A. Unlike any other paragraph of Attachment A, paragraph 10 attempts to connect the seizure of documents described to criminal activity by adding the proviso that the documents to be seized should be tied to “the illegal transactions described herein or who may have knowledge of facts material such transactions.” (GX 28, Attachment A at ¶ 10 (emphasis added).)

         Apart from the fact that the final clause of paragraph 10 is not an intelligible sentence, it further makes no sense because there are no illegal transactions “described herein.” Because neither paragraph 10 nor any paragraph in the Warrant or Attachment A refer to any crime at all, the Warrant completely fails to pass Constitutional muster for lack of particularity.

         II. The Parties' Positions

         In view of the Fourth Amendment violation, Defendant seeks suppression of all fruits of the search. Although it recognizes the Constitutional infirmity of the Warrant, the Government argues that suppression is not the appropriate remedy. Instead, the Government argues that its overall behavior with respect to its investigation of Kayla, and the execution of the Warrant, constitute good faith sufficient to avoid suppression of the fruits of the Kayla Search.

         III. The Hearing

         The Government called five witnesses to testify at the hearing. Those witnesses were Special Agent Michael Snedeker (“Agent Snedeker” or “Snedeker”), Special Agent Yves Hunziker (“Agent Hunziker” or “Hunziker”), Suffolk County Detective Joseph Miceli (“Detective Miceli” or “Miceli”), Special Agent David Darjania (“Agent Darjania” or “Darjania”) and Retired Special Agent Michael Scaringi (“Agent Scaringi” or “Scaringi”).

         In addition to witness testimony, the Government introduced several documents detailing the investigation of Kayla, and the search of its premises. Those documents were prepared both before and after the execution of the Warrant and were admitted as evidence at the hearing. Drago did not testify at the hearing. He did, however, continue to rely upon all prior submissions, including his affidavit, which set forth his recollection of events that took place during the Kayla Search (the “Drago Affidavit”). (DE [24-13].) Before detailing the testimony at the hearing, the Court will describe the documents introduced as evidence during the hearing, as well as the facts set forth in the Drago Affidavit.

         A. Documents and the Drago Affidavit

         The witnesses at the hearing testified at length about documents memorializing the Internal Revenue Service (“IRS”) investigation of Kayla. Many of those documents pre-date the July 29, 2013 submission of Agent Snedeker's Affidavit in support of the Warrant. Those documents consist of several operational plans, and memoranda of witness interviews. They catalogue meticulously the efforts of a team assembled to uncover information in support of probable cause to obtain a search warrant. Such efforts took place over a period of approximately eighteen months and included surveillance of the Kayla premises and enlisting the cooperation of witnesses who had previously pled guilty to financial crimes. (See Tr. 75; GX 1-6, 9-25, 26 (summary of undercover contacts).) The operational plans describe each particular undercover operation in detail. They contain a list of the crimes under investigation, the objectives of the operation, and the background of the investigation. The memoranda of interview are documents prepared after completion of those operational plans that involved the use of a cooperating witness (“CW”). Such operations included a CW's visit to Kayla, and the placing of monitored telephone calls. Each memoranda of interview memorializes conversations between the CW and IRS agents (including Special Agent Snedeker) that took place upon completion of the relevant operation.

         Among the details contained in each operational plan is, as noted, a list of the crimes under investigation. Thirteen separate operational plans were drafted in connection with the Kayla investigation. Those plans detail operations that took place between February and September of 2012. (Tr. 16; GX 1-6, 9-15.) The first group of plans were drafted during the month of February of 2012. (See GX 1-6.) They refer to the possible commission of crimes arising under Titles 31 and 26. Title 31 crimes are those arising out of violations of the BSA and include the failure to file CTR's. Title 26 is the Internal Revenue Code. Crimes arising thereunder include tax fraud. The second set of operational plans describing the investigation of Kayla are dated from July 23, 2012 through September 25, 2012. Those plans include a broader range of possible criminal activity at Kayla. Like earlier operational plans, they refer to structuring crimes arising under Title 31, and criminal activity under Title 26. They also more broadly refer to the possibility of obtaining evidence of crimes arising under Title 18, the general Federal criminal code. (See GX 9-15 (referring to obtaining evidence of structuring transactions to evade CTR filing requirements, as well as evidence proving a conspiracy between targets to impede IRS functions in violation of Title 18); Tr. 112.)

         The Warrant was executed on August 6, 2013 - eighteen months after the date of the first operational plan, and two weeks after it was authorized by the Magistrate Judge. Like prior undercover operations, the plan for execution of the Warrant was outlined in an operational plan (the “August 2013 OP”). (GX 29.) The August 2013 OP described the background of the Kayla investigation. That description refers to Kayla providing assistance to customers on how to structure transactions so as to circumvent CTR reporting requirements. (GX 27.) The “primary objective” set forth in the August 2013 OP is stated as searching the premises of Kayla to seize evidence “as stated in the Appendix A.” This is a reference to the list of items in the Warrant, which, as noted above and in the June 25 R&R, failed to refer to any crime.

         The personnel taking part in the Kayla Search included nineteen individuals. “Entry Team 1” included Special Agents Snedeker and Scaringi, as well as Detective Miceli. The team also included Agent Darjania. Members of the team executing the Warrant were referred to as being part of “entry” teams, “interview” teams and “surveillance” teams. The titles of four members of the team included the title ...


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